An oil refinery leans on manure for a greener future

Every day, dozens of tankers, often loaded with pig manure and other agricultural waste, rumble through the gates of an imposing steel and concrete factory in the northeastern Netherlands.

This pervasive charge will be mixed into a slurry and pumped into huge tanks where, within weeks, hungry bacteria will convert it into methane gas that will eventually be sold to the energy grid to heat homes and generate electricity.

The gas is a biofuel – similar to the natural gas pumped from offshore wells in the North Sea, but is considered carbon neutral due to its biological origin.

The recipe for success, said Fritz Ullrich, the plant manager, is keeping the microbes fed with a steady stream of waste. “We have to pamper them,” he said one morning recently. “They are our factory.”

Mr. Ullrich, who came to this job after running oil depots, seems baffled that he has to tend to bacteria. But the energy industry is going through profound changes, especially in Europe.

For the main owner of the plant, Varo Energy, a privately owned oil refinery in Switzerland that sells diesel and gasoline at filling stations in northwestern Europe, biogas plants like this represent the future – or at least part of it.

The European Union and national governments such as Switzerland are forcing suppliers of oil products to increase the share of the fuel they sell from renewable sources in order to combat climate change. Russia’s efforts to use natural gas as political leverage in the war in Ukraine have increased the urgency to end dependence on fossil fuels.

The result is companies that refine and sell oil are making significant investments that they previously would not have considered. Varo bought an 80 percent interest in this biofuel plant in the Dutch municipality of Coevorden this year to gain a foothold in a company that is expected to grow rapidly. Shell, Europe’s largest energy company, and BP recently spent billions to acquire similar biogas companies.

Varo is not an oil giant like Shell or BP, but its executives, engineers and traders face the same changing demands as the industry changes. In interviews, they seemed enthusiastic about this transition, but remained cautious and spread their bets as it is far from clear how regulations and markets will evolve. The company has set itself the goal of achieving net zero emissions by 2040.

“We’ve seen countries adapt and change the rules every year,” said Theo Pannekeet, Varo’s executive vice president for new energies and innovation. “It’s a very risky environment.”

In Coevorden, Mr. Ullrich is already leading an expansion that will contribute 50 percent to the production of the factory. The company also plans to invest in equipment to cool and liquefy the gas so it can be used as an environmentally friendly alternative to diesel.

Looking ahead, Varo has a tentative deal to supply German airline Lufthansa with so-called sustainable jet fuel, starting with a blend made from used cooking oil and later moving to hydrogen, considered by many to be the green fuel of the future.

The company’s future is still tied to oil – Varo owns and operates the only refinery in Switzerland and a second in Germany – but the company’s executives say they can benefit from gradually going green and help customers achieve their goals in the long run. area of ​​clean energy. And under several national schemes designed to phase out emissions or certify energy as green, Varo can also earn so-called bio-tickets that can be sold to polluting companies – another major source of income.

But this brave new world of energy has obstacles. For example, there is not enough locally produced pig manure and other waste to keep the factory in Coevorden running. That means Mr. Ullrich has to scour the world for shiploads of spoiled corn and other agricultural waste to fill his tanks. The factory even bought grain contaminated by an explosion that destroyed the port of Beirut, Lebanon, in 2020.

And the waste is not free. While natural gas prices soared in Europe last year, the cost of the stuff used in biofuel also increased as demand increased, contributing to a financial loss at the plant last year.

The global hunger for biofuels has led to dubious practices such as clearing forests for wood waste and growing crops for fuel rather than food. The total amount of suitable waste and other inputs available is “many times less than the global demand for jet fuel or marine fuel or industrial gas supply,” said Mark Brownstein, senior vice president for energy transition at the U.S.-based Environmental Defense Fund, a non-profit advocacy group.

Nevertheless, Varo executives are confident that their position in the European energy markets will help secure their future. With Germany cut off from Russian natural gas, they believe, it will be hungry for a green alternative to generate electricity and to power power-hungry factories such as steel mills or chemical plants. The German border runs through a roadway just outside the gate of the biogas plant. “We are in the right zip code,” said Dev Sanyal, CEO of Varo, in an interview.

Varo, with approximately 2,100 employees and annual revenues of $26 billion by 2022, is an 11-year-old company that makes approximately $500 million annually from refining crude oil and distributing and trading petroleum products. Still, the company’s owners — Carlyle, a US-based private equity firm, and Vitol, a commodities trading giant — realized that the company needed to prepare for future changes. Last year they enlisted Mr. Sanyal, who led the gas and renewables business at BP, to change direction.

Like other petroleum companies, Varo tries to please different audiences: customers and regulators who demand clean energy, as well as the regular buyers of the gasoline, diesel and other products pumped out by the two refineries.

With environmental pressures mounting, maintaining the status quo is not an option for oil companies. “If all they’re doing is converting crude oil into refined products, at some point that’s not an attractive thing to do in Europe,” said Alan Gelder, the vice president of refining and chemicals at Wood Mackenzie, a consulting firm.

When Eduard Geus, a former Shell executive, was put in charge of Varo’s refinery in Cressier, Switzerland, last year, he was skeptical about the viability of the unit, which had been built in 1966 in a wooded area. But he said he realized that with petroleum-based fuels likely to be in demand for some time, especially for aviation, a two-track course for the refinery made more sense.

That meant streamlining operations at the refinery to reduce energy use and emissions, while also planning new processing units for low-carbon fuels made from used cooking oil or debris from felling trees in Switzerland’s forests. Varo already blends small amounts of biofuel into the diesel and gasoline it produces for cars and trucks, but the company will have to go much further in the future.

Not everyone thinks Varo is doing enough. In October, a small group of protesters from a group called Debt for Climate Switzerland blocked the entrance to the refinery demanding a transition from fossil fuels, but were arrested by police.

The government of Neuchâtel, the local Swiss canton, seems to want to keep the refinery open. It provides jobs to nearly 300 people and generates employment for many others. Managers like Mr. Geus are cautiously good neighbours, who have recently started lugging pipes excess heat from the plant to homes in nearby villages. “It binds us even more closely to the neighboring communities,” he said.

As Switzerland’s only refinery, supplying about a third of the petroleum products consumed by the country, the Cressier plant also strengthens the country’s energy security. “It’s good to have production on our land,” says Yves Lehmann, who runs the environment and energy department of the canton. “We are convinced that they will continue to play a role in the future.”